8.5 Seed Enterprise Investment Scheme

8.5 Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) aims to encourage equity investment in new small enterprises. (For detailed guidance see HMRC Venture Capital Schemes Manual VC30000 onwards.) The rules for SEIS have been designed to mirror those of EIS because it is anticipated that enterprises may want to go on to use EIS after an initial investment under SEIS. The same rules apply to the definition of qualifying trades, restrictions on connected persons, relationships with subsidiary entities, and the period shares must held for. The
connected person rules means that the maximum individual investment under SEIS is limited to 30% or £45,000. There are a number of key differences between SEIS and EIS. The enterprise must have been trading for less than two years when the SEIS shares are issued, it must have gross assets of less than £200,000 and it must have fewer than 25 employees. The maximum amount it can raise under SEIS is £150,000 and this figure is reduced further by any amount of state aid the enterprise may have received in the preceding three years. The tax relief available through SEIS is 50% and the annual maximum amount an individual can invest in SEIS shares is £100,000. Investors who are reinvesting gains are exempt from capital gains tax for half of the reinvested gain, up to the annual maximum of £100,000.

SEIS is administered by the SCEC at HMRC, using the same procedures as those for EIS. Enterprises can apply for advance assurance using the same application form as for EIS. Following the share issue, the enterprise must submit a compliance statement (using form SEIS1), but only after it has been trading for at least four months or it has spent at least 70% of the funds raised. If the SCEC is satisfied that the enterprise meets the requirements of the scheme, it will issue a certificate to that effect and supply the enterprise with SEIS3 tax relief claim forms for investors.

Societies seeking to raise more than £150,000 can offer both SEIS and EIS, with the first £150,000 raised qualifying for SEIS and subsequent amount qualifying for EIS. Any society planning to do this should make sure it has a robust procedure in place to identify the first £150,000 of investment, and this procedure should be made clear in the offer document.